BENGALURU, May 22 (Reuters) - Shares of Dewan Housing Finance Corp Ltd (DHFL), one of India’s biggest home loan lenders, fell as much as 18% on Wednesday, after it stopped taking new deposits and blocked premature withdrawals following a credit rating downgrade.

DHFL is part of India’s shadow banking sector which has been struggling since a series of defaults at lender Infrastructure Leasing and Financial Service Ltd last year.

Those defaults, which some compared to the Lehman Brothers crisis of 2008, led to increased regulatory scrutiny and some non-banking financiers being put on a watch list.

“The company has stopped acceptance and renewal of fixed deposits due to the recent revision in the credit rating,” DHFL said in a stock exchange filing.

Shares of the company fell by as much as 18 percent in morning trade on Wednesday, but recovered some losses to trade down 9 percent at 117.85 rupees at 0734 GMT.

The move by DHFL came after ratings agency CARE Ratings downgraded bit.ly/2YEmoSd some of the company's instruments, including its fixed deposit programme and non-convertible debentures, to a BBB- rating from A.

CARE A equates to a “low” credit risk, while CARE BBB indicates a “moderate” credit risk.

The National Housing Bank, which regulates mortgage finance companies, does not allow firms to raise deposits if they do not have an investment grade rating.

“In view of the recent revision in the credit rating of our fixed deposit programme, acceptance of all fresh deposits, as well as renewals, has been put on hold with immediate effect,” said a DHFL notice to distributors on Tuesday seen by Reuters.

“Further, to help us re-organise our liability management, pre-mature withdrawal of deposits has also been put on hold,” the notice said.

“However, we will continue to honour all premature deposit withdrawal requests in any medical or financial emergency,” it added.

DHFL has been under scrutiny since investigative media outlet Cobrapost alleged in January that the firm had diverted loans from state-run lenders to shell companies, including those linked to its controlling shareholders. DHFL said the allegations were unfounded and malicious.

The company has been downgraded at least seven times by various ratings agencies in the past two months.

In February, Chief Executive Harshil Mehta resigned amid allegations of financial mismanagement. The company assigned Chief Financial officer Santosh Sharma to another role the following month.

In the letter, DHFL said it will honour all liability payments.

“We ... have demonstrated this by repaying liabilities amounting to approximately 300 billion rupees ($4.31 billion) since September 2018, without a single day’s delay,” it said. ($1 = 69.6675 Indian rupees) (Reporting by Chandini Monnappa and Nivedita Bhattacharjee in Bengaluru; Editing by Rashmi Aich and Darren Schuettler)